5 reasons we make poor decisions

In 1970, Alvin Toffler provoked world thinkers with publication of his predictive book Future Shock, in which he wrote, “Ironically, the people of the future may suffer not from an absence of choice, but from a paralyzing surfeit of it. They may turn out to be the victims of that peculiar super-industrial dilemma: ‘Overchoice.'”

The future is now. In today’s knowledge-based economy, an employee’s primary deliverable is a good decision. However, the reality is we now must consider too much information and too many simultaneous options in too short a timeframe. Because of that, we revert to default judgments based on bias, stereotypes and limited personal experience more often than considering a broader knowledge base and best practices. Why? Here are just a few American belief systems which contribute to faulty decision making:

Avoiding loss is a stronger motivator than the possibility of gain
Psychological scientists Daniel Kahneman and Amos Tversky illuminated the power of framing a choice in win or lose terms. They found that not losing something is a stronger pull than the possibility of gaining a reward. Simply put, odds are greater that you’d intrinsically prefer your company not to lose $100 than you would feel motivated to make $100.

We naturally rest on a default setting rather than act on new (and even more motivational) information
An example: Psychologists Eric J. Johnson (Columbia Univ.) and Daniel Goldstein (Yahoo! Research) found that while about 85 percent of Americans approve of organ donation, our default setting is to not donate. You have to opt in by signing a donor card to participate in the program. Only about 28 percent do so. In contrast, many European countries automatically enroll citizenry in donor programs unless they opt out. When organ donation is the default choice, more than 99 percent of the populace willingly participates. Smart managers check and reset company defaults.

Judgments are more often based on stereotype than probable statisticsTversky and Kahneman did another classic study in which they described an average guy, a very meek and mild “Steve.” They asked experimental subjects what his probable occupation was, listing choices such as farmer, salesman, pilot, librarian and physician. The most common response was librarian, though statistically there are many, many more salesmen, farmers, physicians and farmers than librarians in the U.S. What false assumptions do we make about competitors? Do we poll employees and customers about their wants — or rely on our own interpretations of their desires?

As we focus on our ability to make choices, we become less empathetic toward othersKrishna Savani, Nicole Stephens and Hazel Markus conducted a series of experiments that showed the greater number of choices Americans are able to make, the less our empathetic cushion is for those who lack the resources (or birth demographic or health or company position) to likewise control their destinies. Even suffering a heart attack or being born into poverty becomes someone’s “choice”. For people living in India, this is not the case at all, proving it is a culture-based thought process. American managers, then, may have to push themselves to be more cognizant of the impact their decisions have upon others.

Too few or too many options both lead to regret Adam M. Grant and Barry Schwartz collaborated on a study following on the heels of Schwartz’s earlier experimentation and his theory that the more choices or paths one has available, the more regret we will feel about the roads not taken. In this updated and moderated view, he theorizes that there is a sweet spot, in the statistical inverted U mean zone, where happiness or true success most often lies. For a franchiser, we might conclude that 12 stores are better than three or 40. For a cataloguer, it may mean that customers actually prefer 20 choices of apparel rather than a dozen or 140. More isn’t always better.

The biggest takeaway from all of this may be to back up a step rather than plunge into a quick decision, and to test initial assumptions with both stakeholders and line workers before going green light with project or product ideas.

About Jody Glynn Patrick

Jody is President of Glynn Patrick & Associates, which provides management consulting, executive coaching and strategic planning services. She is Publisher Emeritus of In Business magazine, which she published for 17 years. Selected as the “U.S. Business Journalist of the Year” in 2007 in Washington, DC, by the U.S. Small Business Administration, Jody has been a business reporter, editor, radio talk show host , and has won other state and national journalism awards. At the same time, she has helped corporate clients grow their businesses -- the basis for her practical coaching advice here. She also was the 2005 Athena Award recipient for her leadership role in mentoring other professional women. Jody will be talking with you weekly on TDS’ blog to share her insights and tips from the C-Suite perspective. Follow on G+.

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